Coalition MPs dump superannuation fuel on housing bonfire

Victorian Coalition MP, Tim Wilson, has launched a “Home First Super Second” campaign, which is calling for first home buyers (FHBs) to be permitted to access their funds for a housing deposit before being required to save it as superannuation:

Young Australians are struggling to save enough for a first home deposit. They have savings but they’re locked away in super. The sooner young Australians buy a home the more likely it is they’ll buy it cheaper.

Super matters, but home ownership matters more. Australians should be able to use their super with other savings for their first home, and then save for retirement.

This campaign has resonated within Coalition party ranks, with several MPs backing Tim Wilson’s call. These include Liberal MPs Jason Falinski, Craig Kelly and Gerrard Rennick and National MPs Matt Canavan and George Christensen.

All reportedly spoke in favour of Tim Wilson’s campaign in a Coalition party room meeting on Tuesday, arguing that facilitating home ownership was the best thing for people’s retirement.

Regular readers will know that I am an outspoken critic of Australia’s compulsory superannuation system and believe that it needs fundamental reform. I also strongly oppose lifting the superannuation guarantee to 12%.

However, I also believe that allowing households to tap their superannuation savings to buy a home is fools gold.

The reason relates to what economists call the “the fallacy of composition”, which exists when somebody assumes that what is true for one part of the economy is true for the whole economy.

That is, allowing an individual FHB to tap their super savings to purchase a home would undoubtedly improve their chances of home ownership, since they would have a leg-up on other buyers.

However, if you give all FHBs access to their superannuation savings, this advantage diminishes, since the increased overall demand would bid-up prices.

The end result would be no ‘affordability’ gains and the downside of having less savings in retirement.

Ultimately we have to ask ourselves: do we really want to pour more fuel on the housing bonfire?

No thanks. Let’s instead address the affordability issue at its source by reforming policies that inflate demand and choke land supply.

Unconventional Economist
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Comments

  1. Jumping jack flash

    This makes perfect sense in the New Economy while house prices appreciate faster than super balances.

    Super cheap debt still remains out of reach for FHB due to the difficulty of saving up the ponzi buy-in, aka deposit, which just keeps on going up and up as house prices go up and up, and wages remain stagnant and living costs are gouged.

    Looks like the cat may be coming out of the bag soon with regards to COVID early access to super and the monumental increase in FHB activity?

    Looks like it was a winning strategy, no?

    • It’s an Aussie’s right to be fully invested in housing. To suggest anything else is absurd. Good on the LNP for recognising this fact. Where’s Albo on this? In a cafe in Newtown, doing nothing.

      • Jumping jack flash

        If super balances doubled every 7-10 years then pouring money into super would be a no-brainer. But they dont. I wish they did. My super is literally going backwards except for the fact i keep putting money into the pit because i have to.

        Maybe some time in the future super will be a good investment again, but right now its all houses!

        As for Albo, he epitomises Labor completely.

        • darklydrawlMEMBER

          You need a better super plan by the sound of it, and one you can also actively manage a portion of – Super can double in seven years and you can manage a big chunk of it too. Thoses schemes are out there. I would agree just leaving in the default ‘balanced’ plan and letting the super company manange it is likely to produce less than stellar peformance. It doesn’t have to be that way though.

          • I'll have anotherMEMBER

            Aussies can’t save and can’t be trusted with money.

            Also, Aussies should put their money in super where they should use their highly competent financial skills to invest in such a way the allows them 200% returns and anyone who is not doing this is a dummy.

            That was tongue in cheek but it’s one of the arguments for super which I find contradictory to it’s reason for existence.

            Not saying you said anything untrue – You can definitely double your money. That said most do not have the ability.

          • darklydrawlMEMBER

            “That said most do not have the ability.” <— Yeah, sad but true. I would suggest a lot of folks don't consider Super to be 'their' money and show little interest in the overall balance until they are closer to retirement. Your points are all valid.

  2. Bonzer plan!
    Grab your long-term money (super), eliminate the opportunity for compounding to get a piton hammered in, and simultaneously assume a debt load equal to the last four generations combined.
    Gotta be close to the last hurrah as this on top of last year’s extraordinary stimulus programs. When there’s no more coal, the mighty steam engine puffs no more!

  3. Unbelievable stupidity, but totally expected. I’ve met Tim Wilson and his partner a few times. He’s not a stupid man. I’m certain that he actually believes what he is saying here – but he is wrong, just as he is wrong to defend his elderly constituents at the expense of the young – again.

    For mine, I’m just trying to outrun housing with another asset class. So this kind of news doesn’t really bother me anymore.

    • darklydrawlMEMBER

      Not sure what all the huff puffery with RE is about. People are obsessed with it and as an asset class I find it is the most expensive and annoying one to own. Much prefer shares which have the same (or better) growth prospects with none of the disadvantages of RE.

      Yes, RE investment done well does generate a good ROI, but there is also a lot of hassle and expense you just don’t get without investment classes. Maybe it is just me? I must be deeply UnOzzztrail’n.

      • Sure, it’s illiquid, has very high transaction and maintenance costs but it allows leverage, leverage and more leverage.
        What other asset class offers 10x leverage @ sub 2% pa on a 30 year term with no margin calls?

        • Agree, 10x leverage plus you don’t pay rent, additional properties even higher leverage if use equity from your PPOR.

        • darklydrawlMEMBER

          Hah. Good point. Must admit that I see leverage more as a threat than an opportunity. What a wuss I am!! No wonder I am sulking on the comments rather than living the high life. On the upside I do sleep well at night. hmmmm…..
          I do wonder about the nett worth of a lot of these investors. It’s easy to be a multi-millionaire if you are leveraged to buggery.

          • Amazing we live in a world where obtaining financial literacy is less common than obtaining 8-10x leverage on an asset frequently ranked as the most expensive in the world.

  4. pfh007.comMEMBER

    Brilliant plan!

    Everyone knows that shares can lose value but housing is the one asset class supported by every arm of public policy including the current loony RBA policies of QE and TTF which “talented” observers are demanding be extended and expanded.

    Chasing people away from dangerous shares into bricks and mortar is a public service.

    Good on ya Timbo.

    • Are there any stats to prove whether TFF is actually being used as intended to increase business lending, or whether the banks are effectively receiving tax payer subsidies on mortgage loans?

      • Obviously, the banks are effectively receiving RBA subsidies on mortgage loans, as intended.
        The money isn’t coming from tax payers.
        This is just a further Rate setting measure the RBA is using as they always have.

  5. Is it stupid? Yes
    Will it increase house prices? Yes
    Does it have support from most punters under the mistaken belief it will help them get into a house? Yes

    So that’s a green light for another stupid housing policy.

  6. I’m thinking most first home buyers would be quite young, under 30, so would have little in a superannuation account relative to the size of deposit needed. Pretty useless really, especially as the greedy property industry will simply jack up prices to match super input.
    The answer to making housing affordable for all, especially first home owners, is to slash the mass Third World immigration program. The root cause of almost all that is wrong with Australia especially the past twenty years.
    But, sadly we have an unholy alliance between the progressives and neoliberals which is crystallized in the form of the ruinous mass Third World immigration program.

      • That’s a sobering article, and how many of those nearly 40 year old’s are buying with 5-10% deposits? I’m very fortunate to have been able to purchase with a nearly 90% deposit. I can’t think of anything worse than being 40 with 30 years of mortgage repayments to go…

        • I bought an investment with 0% deposit in my mid 20’s. BEST. DECISION. EVER.
          It says some bad things about the country though…

          Technically I guess I’ve bought 3 properties with 0% deposit.

        • “I can’t think of anything worse than being 40 with 30 years of mortgage repayments to go…”
          Being 40 with 40-60 years of ever increasing rents to pay?

      • House prices will go up by the amount those average 36 year old’s accessing super plonk on a house deposit.
        Then the average first home owner’s deposit will become 50 years. It’s all pretty useless.
        Slash immigration intake to 50,000 net overseas migration … fixes housing and many other problems.

          • The young need to collectivise and go on a buyers strike. Also to note, the boomers are a much smaller cohort than common wisdom around here dictates. https://www.populationpyramid.net/australia/2020/ and only a minority of them tangibly benefits from house price increases. Gen Y has as much investment property as boomers, ditto Gen X (not that I am a believer in segregated generations, one year can make a massive difference to life’s outcomes depending on many factors. )

    • Frank DrebinMEMBER

      Want about if you could use also your parent’s Super balances as a defacto deposit and /or mortgage offset ?. The bank could only come after it in the event of a default.

      Then we would be absolutely cooking with gas !!!!!

    • Yep all those 30 and 40 somethings with a chunk of super to bid up house prices to the moon, after which house prices are through the roof and there are no FHBs left with the capability to raise a deposit. The ultimate can kick.

      • Then they will have to think of something else. We still have the mass immigration to go back to and can double down on that, then we can have negative interest rates and numerous FHBuyer schemes and scams. My guess is that the govt has a full time employee working on a range of rabbits for future hat pulling.

    • +1 Mass immigration is the biggest disaster to ever befall Australia. That it’s decades-long deliberate is beyond insanity.

  7. I’m a prospective FHB. Not sure whether to wait it out for a potential correction or jump in ASAP before prices get out of control. Lots of friends bought recently. Risky business? (Melbourne by the way)

    • I’m pretty sure prices are already out of control, especially in sydney and melbourne.
      The don’t buy now crowd around here have been waiting for a crash for 10 years.
      Even if it crashed 50% it would still be higher than when they started waiting.

    • I can’t say what is best, I held off for years and it only set me backwards in many ways. If you’re invested elsewhere and that investment is outgrowing housing then maybe that’s ok? I will say I don’t regret buying my own home, no matter how much it’s cost me. It’s paid dividends for me personally in terms of permanency and it now also costs me less than my rent did. If your circumstances are similar I’d go for it, but if not maybe renting is ok?

        • Long term bonds and shares have outperformed housing. When interest rates fall from 18% to zero every asset holder thinks they are a genius. I suspect there will be far few geniuses over the next 20-30 years.

          • darklydrawlMEMBER

            Indeed. We are all exceptional on the way up, less so on the return journey I suspect. Housing owners will be the same. It’s easy to be a winner in a rising market.

          • But you can’t leverage them like you do housing and not does the govt gift you the same tax status. The IRR ‘has’ been so much higher. Bottom line is, 8-10x leverage on a $1m Sydney house that appreciated at 7% still left The owner miles ahead of the equity market guru who generated a 20% compound return on their deposit instead (and had the gumption for the volatility)… and after tax , share portfolio of 100k left in the dust.

            How repeatable is it? If rates don’t move dramatically, who knows? but it’s not hard to appreciate the obsession, especially in a world with politicians dedicated to perpetuating it.

      • Don’t have other investments (yet), haven’t been waiting for years though as hadn’t been able to save the amount, also having to rely on a significant gift from the bank of mum & dad. Might wait a few more months to see to what extent the proverbial kitchen sink is thrown. It’s hard to tell whether they would even try to kick us out in the event of negative equity or simply let us be, thousands of other FHBs would be in a similar position no doubt…

        • There is a certain safety in numbers for sure. Just not sure they will be able to save everyone in the event of a big unwinding. My thoughts are they won’t but some may be trapped in permanent negative equity forever.

        • Yeah that’s a really nice 1 and sold for a pretty penny too. I recall seeing it, but not being able to afford it at the time it was listed. Is it for sale again or just visiting someone in the area?

          I really liked Alistair Knox’s use of natural materials and style, I would have liked to have bought 1 of his houses for the history, but I looked at 2 in the Warrandyte area and didn’t like them as much as the Mudbrick home I bought.

          https://www.realestate.com.au/news/alistair-knoxs-redfern-house-sells-in-five-minutes-as-keen-bidders-battle-it-out/
          https://www.realestate.com.au/sold/property-house-vic-warrandyte-132199146

          The second link is the house I looked at immediately before the house I bought. If I had not seen my current home I may have bought that as it had a really nice feel and I love Warrandyte (even if just next door).

          The other house I looked at around a similar time was:
          https://www.realestate.com.au/sold/property-house-vic-eltham+north-132187490

          But I was convinced it was going to sell for $1.2M due to land size and sub-division potential. I also didn’t get a positive reaction from the missus when I saw it, still not sure why, but that’s how it is at times. I was a bit shocked it sold under $1M but the market was still recovering from the Royal Commission at the time.

          So I can’t say I own an Alistair Knox home, but in some ways i feel my home was built better than some of the houses he had built. I am constantly surprised at how many homes he was involved with though! Pretty amazing career.

    • If you have the money to pay it off withjn 10 years … then maybe dive in.
      If it is going to take 30 – 40 years to pay it off, don’t buy now.
      The housing price bubble is unsustainable, could go pop anytime … watchout!

      • LOL. The LNP don’t protect our borders, they protect the boundaries to your house and its ever-inflating price.

    • Arthur Schopenhauer

      Like Gavin, I held off for years. The deposit went up at the rate of prices. Had I bought 5 years earlier, I would have been no worse off. (Smaller deposit, same mortgage, same area.)

      History has shown that Australian Governments of any color will do whatever it takes to sustain the unsustainable.

    • If there’s a crash, it’ll probably be accompanied by inflation which in turn could make the cost of building potentially much more expensive. I’d get a foot in the door if you can. At least you’ll be saving on rent, but be prepared for rising interest.

    • darklydrawlMEMBER

      I don’t believe so yet, but it must up for consideration soon.

      (edit): Did some digging:
      “The measures will commence on 1 March 2021, subject to the passing of legislation.”

  8. Does anybody know when and by what percentage the prices will decline ?? surely its a super dumb idea to use superannuation for housing but leaving it there and if housing crash than so does the share market with it and dragging down one’s super balance too.
    So wundt it be wise enough for FHB to gain access of it now while there is some healthy balance left . A FHB is fu€€ed both ways even if he takes it or not , taking it now and using for housing will atleast have him roof over his head which seems better than someone gambling on his behalf in the market.

    • darklydrawlMEMBER

      “Does anybody know when and by what percentage the prices will decline ?”

      Great question, but “No” is the only answer. History suggest it will happen and it will be massive – circa 70+% falls I suspect. The timing is the devil in the detail. Might be next week, might be in 15 years (or should I give you the default ’18 months!’).

      There are likely to be some warning signs like there was with the GFC in the US back in 2007/8 – but it hard to call as many of those warning signs have shaken the tree numerous times over the last 10 years and the beast still keeps growing.

  9. I wonder if Andrew Charlton and his fellow economic lunatics still think there are no consequences to purely linking housing affordability to loan repayments rather than house prices.

    ” oh house prices are so high they can’t even afford a deposit now. How did that escape my genius. I know let’s lower the deposit to 10%…0%…let them use their superannuation”.

    “oh the entire pension system is going to collapse because interest rates are too low and we can never increase them”.

  10. kierans777MEMBER

    We pretend that super matters even though we’re dead against it really, but home ownership matters more but we can’t actually bring prices down otherwise the boomers will revolt en masse.

    Fixed it to what Tim means vs what he says.

    • The boomers, specufestors, heavily indebted FHB’s, 0.1%ers, commercial real estate investors and on and on…

      • kierans777MEMBER

        > heavily indebted FHB’s,

        They’re the ones I really will feel sorry for when eventually the bubble pops.

  11. Can’t be good for Wilson’s cultivated liberal brand to have the likes of Kelly, Christiansen and Canavan supporting him.

    • happy valleyMEMBER

      I doubt there’s much this bloke wouldn’t do to advance his no. 1 goal of becoming a minister. He had better also get a taxpayer funded campaign tour on the go, just as he did with the franking credit lie campaign. Also, get fund manager cousin Geoff on the case.

  12. Federally I will be voting coalition dead last from now on until they are out. No I don’t care about which party is relatively worse, yes I understand the futility.

  13. To be fair, didn’t Wilson state that “you either ban buying of housing in SMSF’s or you let FHB’s utilize super for a home purchase”

    Not sure why it has to be just FHB but I digress. We know the real pitch is for the former not the latter as Wilson has been flogging that horse for years now…. but we should at least take him up on the offer of the latter!

    • Because anyone other than FHB could theoretically invest in super without needing access to the money externally. A PPOR is not allowed as a super investment from my understanding.

  14. I just cant believe suicide rates are as low as this country claims.

    Its not even funny anymore.

    How are Australians even surviving this?

  15. Arthur Schopenhauer

    What if house prices are fairly priced or even undervalued? I can’t think of any major cities in Asia Pacific that are as pleasant to live in as BrisVegas, Sh!tney, Hellbourne, Mirth, Adelaide and Hobart.

    Maybe Singapore, if you can afford a decent spot.

    The more you think about it, Australian RE might even be underpriced… [edit: relative to regional prices]

    (Quietly backs out of the room, and briskly walks to the exit. 🏃 🔥)

  16. Just like his Franking credits campaign in 2019, Tim’s website is an information harvesting operation. Fortunately the coding is poor, so one can input all sorts of garbage to mess with them.